Tag Archives: Meralco

Power industry

Meralco rate hikes, prepaid electricity and neoliberal “users pay”

2014_02_10_16_21_46

Photo from GMA News Online

First published as IBON Features

The February rate hike of Php0.92 per kilowatt-hour (kWh) that the Manila Electric Co. (Meralco) announced is actually just the initial strike. In March, the unfortunate public should expect an even stronger blow from the utility giant as another rate hike of as much as Php1.44 per kWh looms.

Meralco has a simple solution for consumers who find it hard to cope with their ever-increasing monthly electricity bills. Go prepaid and supposedly save up to 20% in consumption. About 40,000 customers are already using Meralco’s prepaid system called Kuryente Load (KLoad). By yearend, Meralco expects to add 100,000 more.

But the basic question is – how can customers save amid the staggering rate increases? The answer is – they can’t. But with prepaid electricity, as the Energy Department once said, consumers will “not unnecessarily spend for what they cannot afford”. Put another way – If you can’t afford electricity, then don’t use it.

Indeed, looking past Meralco’s dodgy claim, KLoad is nothing more than the worst form of the neoliberal tenet “users pay”. It merely passes on the burden of high power rates further to the consumers. It also deepens the exclusion of the poor from access to electricity as a basic service and their right to decent living.

How it works

KLoad was pilot tested in 2013 and commercially rolled out in 2015. To use it, a customer must have Meralco’s “intelligent” meter installed first and register a mobile number for the account. Through SMS (‘text’) using the registered mobile number, the user can load KLoad cards worth as low as Php100 and as high as Php1,000.

The user will receive a text message confirming that the amount has been loaded successfully to his or her account. KLoad also lets users receive text notifications on the account’s remaining balance, low load reminder, and rate adjustments. Like prepaid cards for mobile, KLoad cards can be bought even at retail stores.

For Filipinos who have long been accustomed to prepaid mobile service, KLoad is pretty easy to grasp. In fact, it is this familiarity with and preference for prepaid mobile that Meralco banks on for its KLoad. Saddled with tight budget, most Filipinos use prepaid mobile to control spending.

Lack of a steady income, in fact, forces many to buy in tingi not just mobile credits but most of their daily needs – from shampoo to 3-in-1 coffee. The same concept supposedly applies to prepaid electricity.

The problem is it’s not quite the case.

Rising power rates

Under the KLoad system, retail rates will be the same as the effective postpaid rate at the particular month the load was consumed. Unconsumed credits in a given month will be charged with prevailing rates in the following month.

Unlike in prepaid mobile and other consumer goods where charges are more or less predictable, electricity rates vary monthly (often upwards). The reason is deregulation under the Electric Power Industry Reform Act of 2001 (Epira), which allows automatic adjustments in the generation charge and other periodic adjustments.

The fluctuating rates make it difficult for a household to effectively monitor and regulate their consumption, and accordingly plan their use of electricity based on prepaid credits.

But far more crucially, the ever-increasing power rates will offset efforts by a household to cut their electricity bill even when they shift to KLoad. No matter how much kilowatt-hour that a household tries to reduce in their consumption, the end result is still an exorbitant electricity bill.

Meralco’s own commissioned survey in 2016 shows that its rates are the third highest in Asia. An average Meralco customer is also paying 4.5% of their disposable income for electricity, higher than the global average of 3.9 percent.

Aside from deregulating rates, Epira also privatized the country’s power plants. In Luzon where Meralco operates, just three groups (i.e., San Miguel, Lopez, and Aboitiz) control 70% of power generation. Such tremendous control makes alleged collusion and price rigging easier like during power plant shutdowns that lead to rate spikes.

The whopping rate hike of up to Php1.44 per kWh that Meralco advised its customers to expect in March, for instance, is due to Malampaya maintenance shutdown from 28 January to 16 February. Other power plants will also be on maintenance shutdown on 13-17 February, placing more pressure on power supply and rates.

Anti-consumer, anti-poor

Instead of addressing these policy issues, the onus of coping with rising electricity costs is further passed on to hapless consumers under the prepaid system. With KLoad, no prepaid credits, no electricity. Disconnection is automatic, done remotely by Meralco. It’s that straightforward and heartless.

Through remote and automatic disconnection when credits run out, KLoad violates the rights of Meralco customers as outlined in the Magna Carta for Residential Electricity Consumers. These rights include the right to due process and notice prior to disconnection and suspension of disconnection.

Prepaid customers are supposed to be notified via text three days before the remaining load is estimated to run out. The warning shall be based on the average consumption of the household. But what if the household used more electricity than their average consumption and depleted the load in two days instead of three?

KLoad primarily targets poor communities where collection of monthly bill is problematic and illegal connection is prevalent. A prepaid system for these households ensures that bills are paid to and collected by Meralco. As explained by the Energy Regulatory Commission (ERC), prepaid electricity reduces pilferage and improves collection efficiency and cash flow for distribution utilities.

Meralco has an existing partnership with the National Housing Authority (NHA) to provide KLoad service to urban poor families resettled from waterways and danger areas in Metro Manila. Recently, in a Tondo slum, Meralco installed KLoad for former Smokey Mountain residents.

Notably, prepaid system is among the supposed best approaches to slum electrification that the US Agency for International Development (USAID) endorsed in its 2004 study that also included Meralco as one of the cases.

Affront to decent living

KLoad is part of the long-term plan of Meralco to install the so-called Advanced Metering Infrastructure (AMI) – an integrated system of intelligent meters – in its franchise area. The AMI will allow Meralco to, among others, remotely switch on and off the supply of electricity not only to prepaid customers but also those with regular connection.

Access to electricity is needed to achieve the minimum standard of decent living. Thus, it should not be contingent upon the ability of people to pay and must be a basic right guaranteed by the state. KLoad and Meralco’s remote and automatic disconnection system is a blatant affront to this right.

KLoad will set a worrisome precedent if not questioned and opposed. It is prepaid electricity today. Prepaid water soon? ###

Also read “Prepaid electricity, anyone?” and other articles on the Philippine power industry

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Consumer issues, Oil deregulation, Power industry

Heartless, greedy Meralco thrives under privatized, deregulated regime

meralco ganid

With the country still reeling from the devastation wrought by Yolanda, the people are facing yet another disaster – the calamity of soaring prices. People ask: Are the oil companies and Meralco (Manila Electric Co.) that heartless and greedy?

Alas, this is the cruel reality of neoliberal economics, of deregulation and privatization. The market is regarded as greater than the people, and government allows the heartless and greedy to reign.

Price hikes

Starting December, oil firms implemented a record-high increase in LPG prices. Petron hiked its LPG price by P14.30 per kilogram (kg); Liquigaz, P13; and Solane, P11. These translate to an increase of P121 to P157 for an 11-kg LPG tank commonly used by households.

Then the oil companies jacked up the price of other petroleum products. Diesel rose by P1.35 per liter; kerosene, P1.20; and gasoline, P0.35. This week, oil firms implemented another round of oil price hikes with diesel rising by 30 centavos. Prior to the latest increases, the price of diesel has already jumped by P4.08 per liter this year and gasoline by P2.04, based on the Department of Energy’s (DOE) monitoring.

And of course, Meralco said that it will implement a hefty increase in power rates this month. The distribution utility said that the hike in its generation charge could reach P3.44 per kilowatt-hour (kWh) but it will be implemented in installments to mitigate the impact.

The Energy Regulatory Commissioned (ERC) allowed Meralco to collect the increase in three tranches. That would be P2 in December, P1 in February and P0.44 in March.

But generation is just one component of the electricity bill that will rise. Also increasing is the transmission charge, which will go up by P0.04 per kWh. Taxes (value-added tax and local franchise tax), system loss charge, lifeline rate subsidy and others, which are a percentage of generation and transmission costs, will also add another P0.67 per kWh in the Meralco bill.

Thus, the actual rate hike to be felt by consumers would be P2.41 per kWh in December, P1.21 in February and P0.54 in March.

However, while the sudden impact of a one-time huge rate hike will be mitigated, consumers will end up paying more. According to the ERC, Meralco may charge its customers an interest on the entire deferred amount or the so-called carrying cost.

And even at a staggered basis, the rate hike would still be tremendous. A 200-kWh household, for instance, will see its Meralco bill jump by P482 this month.

The increase in power bill creates a domino effect on the prices of other basic goods and commodities. Contrary to propaganda of government and big business, wages are not the main driver of price hikes but electricity cost. The Employers Confederation of the Philippines (Ecop) said that power accounts for as much as 40% of production cost.  With the big Meralco rate hike, Ecop also warned of higher prices.

‘What can we do?’

The official who is supposed to be in charge over the oil and power sectors – Energy Secretary Jericho Petilla – had this to say to the restless public: “Kung nagkasabay-sabay silang lahat, hindi yan pinlano, it just happened. What can we do…? Don’t buy, kung namamahalan kayo!”

Of course, Meralco’s customers could not choose not to buy electricity from Meralco. They have no choice. Petilla’s remarks sum up government’s indifference to the plight of consumers, which the Aquino administration has repeatedly displayed in its almost four years in power.

By themselves, the record increases in petroleum prices and electricity bills are already oppressive. But what makes them doubly onerous is that the country is still recovering from Yolanda’s onslaught. Government has not even fully accounted the total number of dead, which now stands at 5,796, according to the latest official count.

Note that this is not the first time that these same companies displayed total disregard of public interest and welfare. Last year, amid the torrential, Ondoy-like rains that poured over Metro Manila, oil companies and Meralco also increased prices.

Price control

Ironically, the country is supposed to be under a state of national calamity as declared by President Benigno Aquino III through Proclamation No. 682. But the string of record price hikes shows that big business can act with impunity.

The reason is that the price control aspect of the proclamation is limited by law and the overall deregulation policy of government. Under Republic Act (RA) 10623 (which amended RA 7581 or the Price Act), the price of LPG may be controlled under a state of calamity but only for 15 days. The price of LPG and other petroleum products is deregulated under RA 8479 or the Oil Deregulation Law.

Electricity rates are also not included among the basic necessities that government may control during a state of calamity. Through RA 9136 or the Electric Power Industry Reform Act (Epira), government deregulated the setting of the generation charge of Meralco and other distribution utilities. Epira also deregulated rate-setting through the wholesale electricity spot market (Wesm).

To pave the way for the deregulation of the oil and power industries, government privatized Petron Corp. and the National Power Corp. (Napocor).

The Oil Deregulation Law and Epira trump the Price Act and any proclamation of a state of calamity. Apparently for government, not even the strongest typhoon ever recorded could change that. Both policies were imposed on the country by foreign creditors led by the World Bank and the Asian Development Bank (ADB).

Artificial tightness

The huge Meralco rate hike is a perfect example of how privatization, deregulation and lack of state control over key sectors burden the consumers. Had government not relinquished effective control over energy development to profit-oriented private business, the public would have been spared from the impending hefty increase in power rates.

The supposed tight energy supply is only artificial. It could have been prevented if the maintenance shutdown of the country’s energy sources and power plants were effectively controlled by government. But because it relies too heavily on private business, government has no handle in determining the maintenance schedule of power plants in a way that ensures energy security and public interest.

For instance, the maintenance shutdown of Malampaya started on Nov. 11, the same date that President Aquino put the country under a state of calamity. Energy officials already knew then that it will trigger a big spike in power rates. At that time, energy supply in Luzon was already tight due to a series of maintenance shutdowns of major power plants.

Plant shutdowns

Meralco, in fact, already implemented a large increase in power rates in November when it jacked up its rates by P1.24 per kWh. The utility giant said that the maintenance shutdown of several big power plants was the main factor behind the rate hike. These were Unit 2 of Malaya power plant in Rizal (Dec. 2012 to Oct.); Unit 2 of Pagbilao plant in Quezon (Aug. to Nov.); Unit 1 of Sual plant in Pangasinan (Sep. to Oct.); and Sta. Rita Module 20 (Oct. 23-28).

In addition, a number of power plants were also on forced outage. These were San Lorenzo Module 60 (May to Mar. 16, 2014); Unit 1 of Masinloc plant in Zambales (Sep. 25-28); Unit 2 of Calaca plant in Batangas (Sep. 29 to Oct. 1); Quezon Power (Oct. 5-6); and Unit 1 of Sual plant in Pangasinan (Oct. 22-26).

Monopoly and manipulation

But instead of ensuring that Malampaya will remain online, especially after Yolanda, government stood idly as the source of 40% of Luzon’s power needs was cut off. The shutdown of Malampaya and of the other power plants, said Meralco, forced its suppliers Sta. Rita and San Lorenzo power plants to use more expensive fuel.

The utility giant claimed that it was also compelled to buy more from the Wesm where electricity is being sold at a higher price. Meralco said that its exposure to Wesm will increase from less than 5% to 12% due to the Malampaya shutdown.

Note, however, that the private investors who control Meralco are the same investors that control the power plants as well as the traders in the Wesm. The 1,000-megawatt (MW) Sta. Rita and the 500-MW San Lorenzo plants are owned by the Lopez group, which also has a 3.9%-stake in Meralco. Power plants associated with the Lopez group also account for around 18% of the capacity registered at Wesm.

Illegitimacy of rate hikes

The concentration of ownership over power generation and distribution, and even over the spot market, raises a valid question on the legitimacy of the power rate hikes. The same thing can be said in the case of the oil industry wherein basically just four companies lord over more than 80% of the industry.

Thus, the move of the House of Representatives to investigate Meralco’s rate hike is a welcome development. Officials of the distribution utility, the power plants, and also the DOE should explain the circumstances behind the huge increase.

There is certainly a need to closely look at the shutdown of Malampaya and the power plants as well to determine if the big power investors are abusing the public through their unhampered control over the energy sector.

But more importantly, policy makers must reconsider government’s energy development program that is hinged on deregulation and privatization. Even without a super-calamity like Yolanda, neoliberal policies like Epira and the Oil Deregulation Law are already greatly oppressing the public. ###

Read more about Epira and the Philippine power industry here and Oil Deregulation Law here

 

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Consumer issues, Power industry

Prepaid electricity, anyone?

Imagine yourself engrossed in your favorite teleserye one night. As a plot-twisting revelation was about to be told by one of the main characters, power was suddenly shut off. It wasn’t a brownout because all your neighbors still had their lights on and only your unfortunate household was engulfed in darkness. You reached for your cellphone and sent an SMS. Within seconds, you received a text message that read: “Your Meralco prepaid balance as of 1/18/13 20:45 is P0.00. Please reload soon to restore electricity services in your household.”

Using SMS

Welcome to the era of prepaid electricity.

The Manila Electric Co. (Meralco), the country’s largest power distributor, has started the first leg of its pilot tests to determine the viability of the prepaid electricity retail scheme in the residential sector. An initial 100 households in Rizal province are covered by the pilot tests, which will eventually expand to 2,000. If the scheme proved to be feasible, Meralco will put some 40,000 households in its franchise area under the prepaid mode of payment.

Meralco, however, is not the first distribution utility (DU) to implement the prepaid scheme. The Batangas I Electric Cooperative Inc. (Batelec I) already launched its prepaid system last Jan. 16 covering around 295 residents in Barangay Camastilisan, Calaca, Batangas. Batelec would later clarify that it’s not yet a commercial operation but only a pilot test. Another cooperative, the Bohol II Electric Cooperative Inc. (Boheco II), has also sought consent from the Energy Regulatory Commission (ERC) to employ the prepaid scheme.

Under the Batelec I system, which is also the same scheme favored by Meralco and Boheco, consumers will use the SMS network to load prepaid electricity credits and check their remaining balance. Consumers can buy prepaid cards denominated in ₱100, ₱200 and ₱300 and send an SMS to 2861 (for Globe users only) to load their prepaid electricity. If they want to check their remaining balance, they can send “kwbalance” also to 2861.

The SMS system may be used too for registration, threshold warning, advice of disconnection and reconnection, and remote disconnection and reconnection. Meralco said that using the SMS system is more practical and viable than installing an in-home display (IHD), which will entail more costs on the utility firm and its customers. An IHD is a prepaid electric meter that loads the purchased energy, display real time information on load consumption and give a warning signal that the load is nearing zero.

Benefits?

The ERC first released the draft rules of the Prepaid Retail Electricity Services (PRES) in 2008. Initially, the PRES covers only residential customers but the coverage was expanded this year to include industrial and commercial establishments as well. Regulators also allowed the use of all available technologies (e.g., SMS, IHD) in the implementation of the prepaid system. When fully realized, the country will join South Africa, Indonesia, India, Australia and New Zealand which are already using prepaid electricity.

According to the ERC, it introduced the PRES so that consumers supposedly can have more power to control their electricity bills. Meralco, meanwhile, claimed that based on a survey it conducted with global conglomerate General Electric (GE) more consumers prefer the prepaid system. Meralco and GE last year signed an agreement on advanced metering infrastructure integrated solution project where the American giant will serve as system integrator.

A Meralco official explained: “Prepaid and buying tingi or sachet is ingrained in the Filipino lifestyle. Many wage earners receive daily or weekly pay, so they would prefer that their expenses from mobile to Internet and — yes — to electricity be also on a tingi basis. This enables them to bridge the timing of their cash outflows.” The utility giant also maintained that the prepaid system will make electricity more affordable for the poor: “If this (prepaid electricity) can be made possible, (consumers) will avoid the monthly experience of having to pay a one-time big amount. With the prepaid scheme, electricity, thus, becomes more abot kaya for some segments of our customers.”

Anti-consumer

These claims by the ERC and Meralco are hogwash; that consumers can really manage better their electricity bill and that the prepaid system will make electricity services more affordable are outright lies. Worse, the prepaid scheme would merely further expose poor households to marginalization while protecting the profits of DUs like Meralco.

Unlike in prepaid mobile phone credits wherein charges are fixed, electricity rates vary monthly (often upwards) because of deregulation under the Electric Power Industry Reform Act of 2001 (Epira). Under ERC rules, unconsumed credits in a given month will be charged with the prevailing rates in the following month. The fluctuating rates will make it difficult for a household to effectively monitor and regulate their consumption and accordingly plan their use of electricity based on prepaid credits. Furthermore, the increasing monthly power rates will offset efforts by a household to cut their electricity bill even if they shift to the prepaid system. No matter how much kilowatt-hour that a household tries to reduce in their monthly consumption, the end result is still an onerous electricity bill (the highest in Asia!) because of ever increasing rates due to automatic adjustments in the generation charge as well as other periodic adjustments allowed under Epira.

Indeed, the overall impact of a prepaid system is the further marginalization of the poor from accessing electricity as an essential service. When the provision of electricity is made prepaid, the cruel neoliberal principle of those who can’t pay can’t use fully comes into play. This creates a serious problem because while many can tolerate not loading their cellphones for a couple of days, not having electricity for running out of prepaid load affects a household’s quality of living. Poor households which rely on a very tight monthly budget that could hardly afford the basic necessities are especially vulnerable. It must be emphasized that depriving people of access to electricity because they have no money to afford it is inhuman, oppressive and exploitative.

But under the prepaid system, the lack of load means automatic disconnection of a household’s power supply. It violates the people’s basic human right to decent living. It also violates the rights of consumers against unfair disconnection of service such as those outlined in the Magna Carta for Residential Electricity Consumers. In the said Magna Carta, consumers have the right to due process prior to disconnection (Article 18); right to a notice prior to disconnection (Art. 19); right to suspension of disconnection (Art. 20); and right to tender payment at the point of disconnection (Art. 21). Under ERC rules, prepaid customers are supposed to be notified (e.g. through SMS) three days before the remaining load is estimated to run out. The warning shall be based on the average consumption of the household. But what if the household suddenly used more electricity than their average consumption and consumed the load in two days instead of three?

Clearly, the only party that will substantially benefit from the prepaid system is Meralco and the other DUs. Consumers, in particular the poor households which are the main target of the scheme, are obliged to pay in advance the DUs for electricity that they have yet to use. This effectively and easily eliminates “bad accounts” or users that could not pay on time and/or could not pay in full due to a limited household income. Furthermore, the system also allows the DUs to cut costs because they will no longer require additional workforce to read the monthly billing or perform the physical reconnection and disconnection of electricity services. Thus, the profits of Meralco and other DUs are firmly secured and guaranteed but at the great expense of poor consumers.

Political, too

Aside from economic gains, DUs and the government could also benefit politically as the social conflict or tension created by unpaid bills and the resulting disconnections are somehow eased by the prepaid system. This is achieved by eliminating the need for the consumers and the DU to transact physically or directly as payments, disconnections, reconnections, etc. are already done through SMS. In a prepaid system, Meralco no longer has to send its people to implement disconnection orders in a community and thus minimize the public visibility of a greedy and heartless corporation that takes away a household’s access to a vital service for failure to pay.

It will also take away the people’s option to use payment boycott as a form of protest against questionable and unjust electricity bills like what the late labor leader Crispin “Ka Bel” Beltran did against the purchased power adjustment (PPA) in 2002. In the book Electric capitalism: Recolonising Africa on the power grid, one of its writers Peter Van Heusden looked at the development of the prepaid electricity scheme in South Africa, which was the first to implement such system through prepaid meters. He noted that prepaid electricity was developed to counter the payment boycotts in the 1980s which was used in Soweto in Johannesburg, South Africa as a political weapon against local authorities and the apartheid regime.

Prepaid electricity does not answer the problem of onerous power rates. It will simply further shift the burden to hapless consumers while making life much easier and more profitable for Meralco and other DUs and absolving government and its flawed neoliberal policies like Epira of accountability to the people. Without electricity because of inability to pay, it’s not only your favorite teleserye that you will miss but also your right to decent living. ###

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Oil deregulation, Power industry

Greed amid calamity

Bayan and its member groups and allies have launched efforts to generate relief goods for flood victims. See table below for a partial list of drop-off centers.

The country’s largest and most profitable firms are oblivious to the devastation being wrought by torrential rains on Metro Manila and various provinces in Luzon. Displaying barefaced greed, oil companies led by Petron Corp. hiked their pump prices, the fifth round in as many weeks since July. Then, the Manila Electric Co. (Meralco) announced a new increase in its generation charge this month. Also, the Business Process Outsourcing Association of the Philippines (BPAP) asked for an exemption from the work suspension order issued by Malacañang.

All these even as hundreds of thousands of mostly poor people are still struggling to survive the worst downpour since tropical storm Ondoy hit the country in 2009. According to the latest update (as of Aug.7, 5 p.m.) from the National Disaster Risk Reduction and Management Council (NDRRMC), the heavy rains spawned by the southwest monsoon have submerged 46 cities and municipalities in Metro Manila and Regions I, III and IV-A, affecting more than 541,000 people. Sixteen have been reported dead.

Such display of cold-blooded corporate greed amid a grave natural disaster is most unconscionable. We have yet to cope with this latest tragedy (and still reeling from the impact of typhoon Gener that preceded the heavy monsoon rains), and already we are being battered by increases in oil prices and electricity rates. Many families have yet to be rescued and still call center firms are requiring their employees to report for work.

But we must not forget that these profit-gluttonous companies have the temerity to do what they do because government allows them. They abuse and oppress the people with impunity because they know that government policies favor them, because they know that they are Aquino’s real bosses.

Petron, owned by presidential uncle Danding Cojuangco, and other oil firms increased their pump prices despite the calamity because the Oil Deregulation Law, which President Aquino has staunchly defended amid criticisms and allegations of overpricing, gives them the right to automatically hike their prices without a public hearing.

Meralco, also owned by Danding and known presidential allies Manny Pangilinan and the Lopez family, increased its generation charge despite the calamity because the Electric Power Industry Reform Act (Epira), whose full implementation is being pushed by Aquino despite strong opposition from Mindanao and other sectors, allows it to automatically increase its generation rates without a public hearing.

BPAP, meanwhile, knows that the BPO industry is one of the few supposedly growth areas prioritized by Aquino in his medium-term Philippine Development Plan (PDP) 2011-2016 for government promotion. I’m not sure if the administration has granted BPAP’s request. But Executive Secretary Jojo Ochoa said that call centers and other private firms that will require their employees to report for work should just “ensure personnel safety and give premium pay”. Para saan pa ang suspension order?

These intolerable acts of greed by the oil companies, Meralco and BPO firms bolster our argument for government to rethink and undo its current policies and programs. Especially during times of calamities, Aquino could not claim helplessness to stop oil price and power rate hikes because his predecessors, as dictated by foreign creditors, chose to deregulate the setting of pump prices and generation charge.

Government must revise its economic plan and stop relying on externally-driven growth sources like the BPO that is so detached from our own development needs, and in this particular case, from our domestic realities. BPO serves American and other foreign clients. Ano bang malay nila kung binabagyo na tayo at nalulunod na sa baha ang mga Pilipinong call center agents?

Unfortunately, Aquino has shown time and again that he is incapable and unwilling to implement the fundamental policy reforms we need.

For an in-depth discussion of these issues, click here (oil), here (power) and here (government’s development plan).

***

The Bagong Alyansang Makabayan (Bayan) and its member groups and allies have launched efforts to generate relief goods for flood victims. Please refer to the table below for a partial list of these initiatives and see which drop-off center for relief goods is nearest to you. Some of the groups have also provided bank accounts where you can deposit cash donations.

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Consumer issues, Power industry, Privatization

More power rate hikes coming soon

meralco

Meralco has raised its generation charge for the fourth straight month and the seventh time since the start of the year (Photo from Reuters/www.daylife.com)

Sorry folks. Meralco (Manila Electric Co) “miscalculated” and had to increase our monthly bills again by 44 centavos per kilowatt-hour (kWh). (Read here) This is the fourth straight month that the giant utility has raised its generation charge and the seventh time since January. This also means that we will be paying Meralco P2.18 per kWh more this month than what we used to pay at the start of the year. If you are consuming 200 kWh a month, it means you will be paying about P236 more in your August billing than what you paid Meralco last January. The bad news is the power profiteers are just getting started.

Good news?

The good news is, according to Malacañang spokesperson Edwin Lacierda, high electricity rates are just temporary and may go down next month. No, the Aquino administration will not compel the Energy Regulatory Commission (ERC) to scrap the Automatic Adjustment of Generation Rates (AGRA) that has legitimized the monthly increases in Meralco’s generation charge. Lacierda, quoting Energy Secretary Jose Rene Almendras, said that they just expect the San Jose power plant to be completely rehabilitated by September. “Hopefully next month we will have lower prices of electricity,” Lacierda said. (Read here)

I do not know which “San Jose power plant” Lacierda is referring to. But I suppose it is the San Jose substation in Bulacan, which is not a power generation plant but a 2,400 Megavolt-Ampere (MVA) transmission facility. In May, the ERC approved the rehabilitation of the San Jose substation, which serves 40 percent of Metro Manila’s power needs, and ordered the replacement of its transformers. The ERC assured then that the rehabilitation “will have no immediate impact on the price of electricity charged to consumers”. (Read here)

Anyway, Lacierda and Almendras are blatantly misleading the people. Electricity rates will remain unreasonably high and will continue to increase in the coming months and years unless Congress will repeal Republic Act (RA) 9136 or the Electric Power Industry Reform Act (Epira) of 2001. (Read here) No less than President Noynoy Aquino has assured the people of high power rates in his State of the Nation Address (Sona), in which he lambasted the Arroyo administration for allowing the National Power Corp. (Napocor) to sell electricity at a loss. But Aquino’s argument on why the state-owned power firm went broke ignored the role of privatization as I’ve pointed out in a previous post. (Read here)

Nationwide increases

The problem of exorbitant and unabated power rate hikes is not confined to Metro Manila or Meralco’s franchise area. Using the Performance Based Regulation (PBR) scheme, a rate-setting methodology for distribution utilities that was made possible under Epira (Read here), the Visayan Electric Co (Veco), for example, has recently raised its distribution charge for residential customers by 3.41 percent. (Read here) Meralco, using the PBR methodology, has also increased its distribution charge by a total of 35 percent last year, on top of its increases in generation charge. (Read here)

But the rate increases of Meralco, Veco and other distribution utilities are just a portion of the bigger increases that households nationwide will have to face soon. The Power Sector Assets and Liabilities Management (Psalm) Corp., which Epira created to undertake the privatization of Napocor’s generation assets, has asked the ERC for rate increases (all in all, about P1.86 per kWh) to recoup supposed losses arising from stranded costs (read: guaranteed profits of independent power producers) as well as fat bonuses of Psalm officials. (Read here) The Philippine Electricity Market Corp. (PEMC), which is the governance arm of the Wholesale Electricity Spot Market (WESM), another Epira creation, has filed a petition for a 74-centavo per kWh hike in the spot market’s transaction fees. (Read here) The National Grid Corp. of the Philippines (NGCP), which took over the privatized transmission facilities, again as mandated by Epira, is seeking its own rate increase of 5 centavos per kWh in Mindanao. (Read here) Finally, Napocor has pending applications for rate increases of P3.38 per kWh in Luzon and P4.71 in the Visayas to recover adjustments in generation costs and currency fluctuations. (Read here)

Imagine how much our monthly electricity bill will cost if all these applications – on top of the automatic monthly increases such as Meralco’s generation charge – were approved by the ERC.

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Consumer issues, Power industry, Privatization

Meralco’s rate hikes and neoliberal power reform (2)

Continued from Part 1

The series of increases in generation charge that Meralco has implemented this year is made possible by deregulation under Epira. Meralco explains in its website that “the level of Generation Charge is adjusted on a monthly basis as prescribed by the ERC in its Order dated October 13, 2004 under ERC Case No. 2004-322 approving the ‘Guidelines for the Automatic Adjustment of Generation Rates  and System Loss Rates by Distribution Utilities or the AGRA’”.

Increasing rates

Section 43 (f) of Epira authorizes the ERC to “adopt alternative forms of internationally-accepted rate setting methodology that will ensure reasonable price of electricity and non-discriminatory rates”. Since power rates have been unbundled under Epira, the ERC have set different rate setting methodologies for generation, transmission, and distribution as well as system loss.

Distribution utilities (DUs) like Meralco use the Performance-Based Regulation (PBR) methodology for their distribution rates and the AGRA to reflect adjustments in generation costs charged by their suppliers. AGRA allows DUs to calculate new generation rates on the tenth day of each calendar month. In the last 12 months, generation rates “passed on” by Meralco have been on an upward trend jacking up the electricity bill of end-users. (See Chart)

According to the ERC, the AGRA was devised to ensure, among others, “transparent and reasonable prices of electric power service in a regime of free and fair competition and to achieve greater operational and economic efficiency”.

From PPA to AGRA

But is it fair and reasonable for end-consumers to shoulder the adjustments under the AGRA? The AGRA actually is the latest incarnation of the notorious, pre-Epira Purchased Power Adjustment (PPA). The PPA was an automatic cost recovery mechanism designed to attract private IPPs in power generation. Through the PPA, IPPs are assured that they will be paid for contracted capacity (even if they did not actually produce it) and they will be protected from the fluctuating costs of fuel and foreign exchange rate – all of which are shouldered by the consumers in the form of PPA.

When Epira’s unbundling of rates was implemented in May 2003, the PPA was incorporated in the generation rates charged by IPPs and passed on to end-consumers by Meralco and other DUs in the form of the Generation Rate Adjustment Mechanism (GRAM). The GRAM was a deferred recovery mechanism using a three-month test period. Napocor and DUs had to apply their quarterly GRAM before the ERC, which will review and approve it. Meralco and other DUs criticized the GRAM because it “does not represent the true cost of power for the period that it is being recovered” and that “it resulted to cash flow problems on the part of the DUs”.

Automatic adjustments

Thus, the ERC replaced the GRAM used by the DUs with the AGRA (Napocor, on the other hand, continues to use the GRAM). The main difference is the manner of recovery – the AGRA like the PPA is automatically calculated and collected by Meralco and other DUs every month (i.e. without public hearings conducted by the ERC like in the case of GRAM).

The only sort of “oversight” on AGRA that the ERC exercises is that “at least every six months, the ERC shall verify the recovery of Generation Costs by comparing the actual allowable costs incurred for the period with actual revenues for the same period generated by the generation rates and the portion of the Systems Loss Rates attributable to Generation Costs”.  But if the ERC fails to verify the generation rate within six months from the submission of calculation by a DU, “the rates shall be deemed final and confirmed”. This set up not only gives Meralco more opportunities to exploit consumers but even legitimizes such abuse.

Automatic cost recovery schemes such as AGRA are indispensable in a deregulated and privatized energy sector. They are the concrete operationalization of the neoliberal principle of making so-called market forces in a regime of presumed free and fair competition determine the cost of a commodity or service. But the problem is there is neither free nor fair competition in the power sector as giant private monopolies like Meralco have been further strengthened by Epira. Worse, a related sector that significantly affects the cost of power, the oil industry, is also deregulated and dominated by private monopolies thus doubling up the burden of consumers.

Market-based, pro-investment rates 

Aside from the AGRA, Meralco is also allowed to increase its distribution rates using another market-based mechanism – the PBR. Based on Epira’s Section 43 (f) provision, the ERC is using the PBR to determine the rates that Meralco and others can charge. The PBR, which hiked Meralco’s distribution charge by a total of 41 centavos per kWh in separate increases in April and December last year, was chosen by design.

Consistent with the neoliberal agenda of Epira, PBR makes rates setting more market-based and reduces regulatory oversight, abolishing the 8-12 percent return on rate base (RORB) that DUs were allowed to use in the past. Under an RORB formula, rates are pegged on “reasonable” return on the assets actually used in distributing electricity. The PBR, on the other hand, adheres to the principle that “good utility performance should lead to higher profits” and thus allows DUs to charge rates based on projected investments and operating expenses related to electricity distribution. Like the AGRA in the case of power generation, the PBR ensures the commercial viability of DUs by making the end-consumers shoulder the risks of future investments and operating costs of running the utility.

Revenue-neutral?

The generation charge is just one of the 20 unbundled items that can be found in a Meralco monthly bill. But it comprises 50-60 percent of what Meralco customers pay. (The distribution charge, on the other hand, accounts for 20-25 percent of the monthly bill, Meralco claims.) The utility giant repeatedly claims that as a pass through charge, generation rate is revenue-neutral or it does not add anything to Meralco’s income. This may be true, but it does not mean that certain owners of Meralco do not benefit from increased generation rates.

The Lopez family, which currently controls 13.4 percent of Meralco, for instance, also owns the IPP First Gen that in turn owns First Gas Power Corp., operator of the 1,000 megawatt (MW) Sta. Rita Power Plant, and the FGP Corp. which operates the 500-MW Sta. Lorenzo Power Plant. In May 2010, the two power plants accounted for a combined 35.7 percent of power supplied to Meralco.

Other power sources of Meralco include the Napocor, which accounted for 24.3 percent and the wholesale electricity spot market (WESM), 17.2 percent. WESM was created under Epira as a spot market for trading electricity in the Philippines. Among the power generators involved in the WESM are the Lopez-owned First Gen power plants and the First Gen Hydro Corp., which runs the 100-MW Pantabangan Hydroelectric Plant and the 12-MW Masiway hydro plant. In addition, the Lopez family also established the First Gen Energy Solutions to “sell, market, or aggregate electricity to end-users” in the WESM.

Private monopoly

Aside from not prohibiting owners of DUs to also operate generation plants, Epira also allowed the DUs themselves to own power generation plants. Meralco, for instance, is planning to get into power generation to remain “competitive” when open access is implemented next year. Open access, another restructuring under Epira that is expected to be operational as early as next year, allows customers using not less than 1 MW to choose their own suppliers.

Epira’s objective was to dismantle the monopoly of Napocor over the power industry. But by allowing cross-ownership in distribution and generation, it has simply transferred such monopoly control to a few private companies such as Meralco. Transmission is also now a private monopoly by a consortium that includes Enrique Razon’s Monte Oro.

A year after open access, Meralco’s supply contract with Napocor shall automatically lapse. Under Epira, DUs are allowed to source not more than 50 percent of its power needs from its bilateral contracts with affiliated IPPs but the cap does not cover contracts forged before Epira was passed (such as Meralco’s supply contracts with First Gen). Meanwhile, DUs are also mandated by Epira to purchase at least 10 percent of their power requirements from the WESM for the first five years of the spot market’s operation. Epira is not clear what will happen after this period. In other words, Meralco can purchase as much as 90-100 percent of its power needs from affiliated IPPs, making cost manipulation easier.

Spot market manipulation

But even if Meralco is required to buy more from the WESM, it still does not guarantee cheaper and more reasonable power rates. This is because even the spot market which is supposed to facilitate free competition among suppliers to bring down electricity costs has been used to manipulate and jack up electricity rates. In fact, the largest monthly increase in generation charge implemented by Meralco so far this year was by 93 centavos per kWh in April, which the utility giant blamed on the increase in the price of WESM.

The WESM has become a venue for speculation in the price of electricity to the detriment of consumers. At one point in February, when talks about limited power supply due to El Niño started to surface, the price of electricity in the spot market jumped to an unbelievably high P68 per kWh.

It was also observed that half the time in the first two months of the year, the maximum offered capacity in Luzon was lower than peak demand although reported dependable capacity was even higher than peak demand. During this period, some big plants like San Miguel Energy Corp.’s (SMEC) 540-MW Sual Unit 1 power plant stopped operation for one month due to “coal supply problems”. Another SMEC-owned power plant, the 620-MW Limay power plant, also went offline for about three weeks during the same period for “inspection purposes”. San Miguel also has a 34 percent stake in Meralco. The unscheduled outages in its power plants fueled talks that SMEC may have intentionally shut down the Sual and Limay plants to constrict power supply and jack up rates.  

At the mercy of “market forces”

Epira did not make power rates charged by Meralco and other DUs in the country cheaper, reasonable, or even transparent. By further strengthening the monopoly control of private utility giants like Meralco through privatization and deregulation of power rates, Epira made consumers even more vulnerable to abuse and exploitation.

The series of increases in the generation charge this year amid allegations of supply manipulation and speculation in the WESM and unresolved and fresh cases of Meralco’s overcharging has made the long-time practice by power companies of passing all the business risks associated with generation, transmission, and distribution to hapless consumers even more deplorable. For consumers, there is no other way out of this quagmire but to repeal Epira and reverse the privatization and deregulation of the power industry.

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Consumer issues, Power industry, Privatization

Meralco’s rate hikes and neoliberal power reform (1)

Photo from flickr.com/Maan Bernales

Consumers are again up in arms with the latest increase in electricity rates imposed by the Manila Electric Co. (Meralco). The utility giant called the rate hike “slight”. At 5.8 centavos per kilowatt-hour (kWh), maybe it will be hardly felt by Meralco’s 4.7 million customers in their August billing.

But the recent power rate increase is neither small nor negligible when viewed in the context of successive rate hikes in the previous months (amid rotating brownouts, no less). The past increases were also huge that some consumers complained of having to pay Meralco twice as much for the same consumption.

Long-held perception

The unabated rise in monthly power bills reinforced the long-held public perception that Meralco is greedy and abusive and government regulators are inutile. It also revived calls to immediately bring down power rates by scrapping the 12 percent value added tax (VAT) on electricity. Indeed, Meralco and the Energy Regulatory Commission (ERC) must be held to account and the VAT on power must be scrapped.

But these proposals are not enough. Power rates will remain exorbitant and power utilities like Meralco will continue to abuse consumers without reversing one of Gloria Arroyo’s most anti-people, anti-development, corruption-ridden legacies – the neoliberal privatization and deregulation of the energy sector through the Electric Power Industry Reform Act (Epira).

Soaring profits

Doubtless, Meralco is a bad company (for consumers, that is, but surely not for its stockholders). Its long list of illegal and over collection cases is a testament to its unscrupulous reputation. To be sure, the Energy Regulatory Commission (ERC) is an even worse regulator. Its habitual failure to check Meralco’s abusive practices, and in many cases even legitimizing them, demonstrates its bias for industry players.

Last year, Meralco’s net profits increased by a whopping 114 percent (from P2.8 billion in 2008 to P6 billion) mainly due to an ERC-approved 13.9-centavo per kilowatt-hour (kWh) hike in the distribution charge of the utility giant in April 2009. Then in December, the ERC approved another increase in Meralco’s distribution charge, this time by 26.9 centavos. The distribution charge of Meralco thus increased from P1.0831 per kWh at the start of 2009 to P1.2227 in April and then to P1.4917 in December.

Imagine how much profits Meralco will rake in this year once the December increase in distribution charge makes its presence felt in the company’s end-2010 balance sheet. But to give you an idea, Meralco disclosed to the Philippine Stock Exchange (PSE) that its first quarter 2010 profits grew by 135 percent compared to the same period in 2009 (from P0.8 billion to P2 billion).

Overcharging

One week approving after Meralco’s distribution rate hike in December, the regulatory body received the report of the Commission on Audit (COA) saying that Meralco illegally collected as much as P6.64 billion from its customers in 2004 (P4.7 billion) and 2007 (P1.93 billion). But instead of reconsidering its earlier decision allowing the utility to hike its distribution charge, the ERC sat on the COA report. It was only after more than one and a half months since receiving the audit body’s findings that the ERC started to hear the case.

Amid this fresh allegation of overcharging, the ERC still allowed Meralco to continuously jack up its rates to recover the supposed increases in the cost of power generation like the 5.8-centavo/kWh increase this month. Prior to this increase in generation charge, Meralco also raised it by 44 centavos in February, P1.83 in March and P1.20 in April. It eased by P1.26 in May that the utility attributed to lower price of power it buys from its suppliers. But it again jumped by 18 centavos in June.

Remember also that until today, Meralco has yet to fully implement the billions of pesos in refunds that it owes to consumers worth more than P34.12 billion, including the P30.2 billion in income taxes that Meralco illegally collected from 1994 to 2002.    

VAT on power

Meanwhile, the 12 percent value added tax (VAT) imposed on electricity continues to be an onerous burden for consumers. In the case of the power industry’s system loss, VAT is doubly onerous since it is a consumption tax charged on electricity that is not even consumed.

In 2009, the Bureau of Internal Revenue (BIR) collected P10.6 billion (preliminary data) in VAT from the power industry and electric cooperatives. Since electricity was included among VAT-able goods and services in November 2005, no thanks to Republic Act (RA) 9337, the government has already collected a total of more than P47.41 billion in VAT on power.

Latest national data on electricity sales is 2008, pegged at 49,206 gigawatt-hours (GWh). Meanwhile, VAT collection from the power sector during the same year was P16.05 billion. This means that on the average, VAT collection from the power sector in 2008 was about 32.6 centavos per kWh.

System loss in 2008 for the entire power industry was about 12.63 percent of total electricity sales. This means that on the average, hapless consumers shelled out more than P2 billion to pay for the VAT on electricity they never used.

(To be concluded)

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Oil deregulation, Power industry, Privatization, Water crisis

Overpriced oil inflates costs of El Niño, power crisis

Petron and other oil firms have been jacking up pump prices in recent weeks (Photo from http://www.petronmarketing.com)

Those who are ready to absolve government for the harmful effects of El Niño should think again. While El Niño is a natural phenomenon, its impact on the people and the economy could have been eased by right government policies. Sadly, the policies in place have exposed the country not only to the strongest blows from what experts describe as a “moderate” El Niño. These flawed policies have also exposed us to El Niño’s magnified impact.

Deregulated, privatized energy

Take the case of power and oil – strategic sectors that have been privatized and deregulated by government. As the water level in dams around the country fell, hydropower generation also declined. Consequently, more power is generated from plants running on expensive and overpriced oil. To make the situation worse, oil prices have been on an uptrend again in the past few weeks. Electricity bills, which are also artificially bloated, climbed as a result. Prices of other commodities and services are sure to follow.

Such predicament could have been capably addressed by a government that has the needed policy tools. But it threw away these tools when it allowed private corporations to take control of the entire energy sector. It tried to reclaim some of these tools through emergency powers but was met with understandable public skepticism. In the end, the reality that Congress could not be convened at this point in the election season forced government to give up the plan.

As an alternative, government now intends to lease modular generating sets that could produce an additional 160 megawatts (MW) of electricity for Mindanao. By itself, this plan is already costly with an initial tab of P5.5 billion aside from increasing power rates in Mindanao by P14 per kilowatt-hour (kWh). But it is made even costlier by overpriced oil that will be used in great amounts to feed the generating sets.

Amid the El Niño, energy companies, with their greed and abuses un-moderated, are having a heyday.

P8.12 per liter overpricing

In the coming months, households not only in Mindanao will have to pay for higher electricity bills. The reason is not only the limited supply of cheaper hydropower due to El Niño. As more power is generated by oil-fed power plants, consumers also become more exposed to the impact of frequent oil price hikes and overpriced petroleum.

Under Republic Act (RA) 8479 or the Oil Deregulation Law of 1998, oil companies are allowed to increase pump prices at whim. They are not even required to inform the public about their price changes, much less explain their price hikes. This policy has been abused to the hilt by the oil firms. The National Economic Development Authority (Neda) itself has once confirmed that oil firms are indeed overpricing their products.

As of January 2010, oil products in the country are still overpriced by an average of P8.12 per liter. This figure is based on the monthly difference between the ideal and actual changes in pump prices from January 2008 to January 2010. The ideal pump price adjustment is computed using the difference in the monthly averages of Dubai crude and foreign exchange (forex) rate during the said period. The actual price movement, meanwhile, is based on the Department of Energy’s (DOE) monitoring.

There is no consolidated data yet on actual pump price movement for February and March. But note that in February, there should have been an 83-centavo per liter rollback based on Dubai crude and forex monthly movements. The actual pump price of diesel, however, did not move during the said month while kerosene prices even jumped by 25 centavos a liter. In other words, the overpricing could be much higher (aside from the fact that even before imported oil reach our ports, they are already overpriced due to global monopoly control by the oil giants).

Daily overcharges of P7.44 M for Minda extra power

Meanwhile, government’s plan to lease modular generation sets to produce

Power generated by the Agus and other hydroelectric power plants in Mindanao has drastically fallen due to El Nino (photo from http://static.panoramio.com/)

an additional 160 MW of electricity in Mindanao will require millions of liters of petroleum. For purposes of comparison, let us look at the 1 MW Generac Diesel Power Module manufactured by Mitsubishi. This generator, running at 100 percent capacity, consumes 238.56 liters per hour of diesel; at 75 percent, 178.92 liters; and at 50 percent, 119.28 liters.

Using this as yardstick, and factoring in the P8.12 per liter in overpricing, we can estimate how much the people will needlessly spend for additional electricity in Mindanao. We shall use the 100 percent capacity level since the generating plants that will be leased need to run at full capacity to augment the power shortage in the region.

Per hour, the overpricing would be equivalent to P1,937.11. If a 1-MW generator runs for the entire day, the extra cost would be P46,490.57. If the entire 160 MW is generated in a day, the figure would be P7.44 million. For one month (30 days), the overpricing would be P223.15 million. If the 160-MW generators were commissioned for three months (April to June), taxpayers will unjustly shell out around P669.45 million on top of the real price of diesel and the cost of leasing the generating plants.

Unabated oil price hikes and overpricing also worsen the people’s burden due to El Niño in other ways. For instance, farmers who rely on irrigation pumps and fishers who use motorized bancas will have to pay more for gasoline. Note that due to El Niño, more farmers turn to irrigation pumps. Fishers also consume more gasoline as they spend more time fishing (warm temperature drives fish to deeper waters, fishers claim).

Overpriced power, too

Meanwhile, outstanding issues in the power sector continue to unjustly burden the people with or without an El Niño. Due to the ongoing implementation of RA 9136 or the Electric Power Industry Reform Act (Epira) of 2001, power rates remain exorbitant and continue to shoot up. Automatic adjustment in generation charges, for instance, allowed Meralco to again hike its rates for March by P1.38 per kWh. Just last year, Meralco jacked up its distribution rates by 41 centavos per kWh.

The Epira-created Wholesale Electricity Spot Market (WESM) also gave more opportunities for the new private power monopolies to manipulate electricity rates. In February this year, for example, power rates in the WESM spiked to as much as P68 per kWh, which Arroyo’s own economic adviser Albay Gov. Joey Salceda described as “unspeakable”. Apparently, power companies trading in the spot market withheld supply, a market abuse easily done by firms in control of both distribution and generation, jacking up prices in the process. Power sold in the Luzon grid is dispatched through the WESM, a mechanism that will also be set up in the Visayas soon.

These increases become more deplorable as power companies, like the oil firms, also overcharge the consumers. In its December 2009 report, for instance, the Commission on Audit (COA) said that Meralco’s illegal charges could reach more than P7 billion. And Meralco has not even com-

Activists call for the nationalization of the oil industry (photo from http://www.bayan.ph)

pletely refunded the P34.12 billion in overcharges that it illegally imposed on its almost 5 million customers in the past.

Nationalized energy

The energy sector is a lucrative industry but the billions of profits it makes come at the expense of the people and national development. Such greed and abuse become more deplorable during times of natural calamities such as the current El Niño when the people’s poverty and hunger intensify and the domestic economy is further undermined.

What we need is an oil and power industry that is not privatized and deregulated, and that is not controlled by the Cojuangcos, Aboitizes, Lopezes, Pangilinans and their American, European, and Japanese partners. What we need is an energy sector that is nationalized, state-owned, and effectively controlled by the Filipino people. Only then can we stop overpricing in petroleum and electricity, and better plan the energy needs of our people and economy.

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Consumer issues, Power industry, Privatization

Meralco’s insulting attempt at pa-pogi

Meralco bill (Image from ofwnow.com)

On Tuesday (March 9), the Manila Electric Co. (Meralco) asked the Energy Regulatory Commission (ERC) to allow it to “reduce” and spread over several months the whopping P1.83 per kilowatt-hour (kWh) hike in this month’s generation charge.

This is clearly a case of an insulting attempt at pa-pogi. Meralco wants to make it appear that consumers should have utang na loob for the firm’s voluntary offer to mitigate the impact of a drastic rate hike when in reality, the rate increase is unreasonable and Meralco has billions of unpaid debts to its close to 5 million customers.

Lower rate hike

In its petition, Meralco said that instead of a one-time hike of P1.8298 per kWh in generation charge for March, the ERC approve a rate hike of just P1.3852. The remaining balance of 44.46 centavos shall be collected from April to September to ease the impact of the increase on its customers.

Under the Electric Power Industry Reform Act (Epira) of 2001, distribution utilities like Meralco can implement automatic generation rate adjustment. This means that they can automatically pass on to consumers increases in the cost of power generation.

Overcharging probe

Meralco’s move comes amid an ongoing probe on fresh allegations that the power firm overcharged its customers. In a December 2009 report, but released to the public only last month by the ERC, the Commission on Audit (COA) accused Meralco of overcharging its customers by as much as P7.29 billion.

According to the COA report, Meralco illegally passed on to consumers operating expenses such as P2.36 billion worth of employees’ pensions and benefits. Consumers were also made to shoulder the costs of property and equipment that COA said are questionable including the construction of a P526.2-million creek and a P156-million parking lot.

The ERC is expected to conduct public hearings this month to determine if the power firm needs to refund or implement a rate reduction to offset its over collections. Or it can also uphold Meralco’s claim of innocence.

Propensity for abuse

But this is not the first time that Meralco has been accused of overcharging. In 2003,  the Supreme Court (SC) affirmed COA’s findings that Meralco illegally collected P30.2 billion from its customers from 1994 to 2002. COA discovered that Meralco included income taxes in its RORB (return on rate base) calculations resulting in bloated electricity bills for consumers. Until today, the power distributor has yet to fully comply with the refund order of the SC.

Far from the image of a considerate and responsible company it desperately hopes to portray, Meralco has shown its unmistakable propensity for abuse. Its pattern of overcollections in the past couple of years clearly attests to this. Aside from the P30.2 billion, Meralco was also ordered by the ERC to return P2.88 billion in meter deposits as well as P3.92 billion in over-recovery of currency adjustments.

Upholding public interest

The power distributor could not claim that its generation charge is simply a pass on cost. Remember that Meralco sources its electricity from its own independent power producers (IPPs) and sister firms. Even in the Wholesale Electricity Spot Market (WESM), which Meralco is citing for the sudden and drastic hike in this month’s generation charges, Meralco’s sister companies and IPPs allow Meralco to account for as much as 40 percent of generated capacity.

Thus, consumers have nothing to thank Meralco for. We do not owe Meralco a single centavo, and it is Meralco that still has to return billions of pesos it illegally collected from us.

In light of the latest COA report accusing Meralco of again overcharging the consumers, the ERC should disallow any petition for a rate hike by the power distributor. Allowing it to jack up its rates would mean continuing injustice to consumers.

An immediate rate reduction is also justifiable considering that the latest COA report questioned the cost assumptions that the ERC used in approving Meralco’s huge 41-centavo hike in its distribution rates last year, which  allowed Meralco to post a 114 percent increase in its 2009 profits.

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Consumer issues, Power industry, Privatization

Rising electricity bill and neoliberal reforms

First published by Bulatlat.com

There’s good news for its close to five million customers to start the New Year, said utility giant Manila Electric Power Co. (Meralco). It claimed that its January billing will go down by 30.5 centavos per kilowatt-hour (kWh) due to lower generation and transmission charges.

But Meralco did not say that the said reduction is just one side of the story. The other side is that consumers must brace for a new 26.9-centavo increase in Meralco’s distribution charge. On top of this, power users in Luzon and Visayas should also anticipate a hike of P3.38 and P4.71 per kWh, respectively in generation and transmission charges from the National Power Corp. (Napocor).

These increases continue the trend in soaring electricity rates in the country. Some blame it on regulation failure or even regulatory capture. But the deeper issue is the neoliberal restructuring of the power sector that has legitimized these onerous power rate hikes.

Rate hikes

Last December 14, the Energy Regulatory Commission (ERC) allowed Meralco to jack up its distribution charge from P1.2227 to P1.4917 per kWh. The rate hike was based on a formula under the commission’s so-called Performance-Based Regulation (PBR).

It was in fact the second round of increase in Meralco’s distribution charge through the PBR. In April last year, the ERC also let the company hike its rate from P1.0831 to P1.2227 per kWh. Thus, Meralco has raised its distribution charge by 40.86 centavos per kWh or by 37.7 percent in the last eight months.

This easily belies claim by Meralco that the 30.5-centavo drop in generation and transmission charges would offset the hike in its distribution rates. The net effect of its 2009 PBR rate adjustments and the January fall in generation and transmission charges is an increase of almost eight centavos per kWh.

Prior to the latest increase in its distribution charge, Meralco has also raised its metering charge by 9.45 centavos per kWh between December 2008 and December 2009. (During the same period, the distribution charge also increased due to the first PBR. See Table 1)

And there seems no end in sight for the woes of hapless power consumers.

Remember that Napocor too has pending applications before the ERC for rate increases. The most recent, filed last December 28, seeks to hike generation and transmission charges by P1.7033 per kWh in Luzon; P1.3545 in the Visayas; and 22.54 centavos in Mindanao. These applications fall under the so-called 14th Incremental Currency Exchange Rate Adjustment (ICERA) and 15th Generation Rate Adjustment Mechanism (GRAM).

The ERC has yet to decide on two previous ICERA (12th and 13th) and GRAM (13th and 14th) applications by Napocor. If approved, customers in Luzon will bear a total increase of P3.3811 while those in the Visayas, P4.7134 per kWh. Mindanao consumers, on the other hand, will see a reduction of P1.0977 per kWh. Napocor explained that 90 percent of Mindanao’s power supply is generated by cheaper hydro-power, thus the rate reduction. (See Table 2)

GRAM and ICERA are cost recovery mechanisms to make the power sector attractive to private investors. GRAM replaced the notorious purchased power adjustment (PPA). But the principle remains the same. Consumers bear all the risks associated with the operation of power plants including fuel costs and foreign exchange fluctuations.

“Good utility performance”   

Some critics argue that unreasonable power rates are due to regulators’ failure to implement the law. They say that the ERC does not follow the intent of the Electric Power Industry Reform Act (Epira) of 2001. There is a need to clarify this.

The problem is Epira itself. While couched with pro-consumer intensions, the law in reality aims to create the most conducive environment for private capital.

Epira created the ERC as an independent, quasi-judicial body. Among its key functions is to determine the distribution rates of utilities like Meralco. As to the methodology, Epira lets ERC to use any form as long as it is internationally accepted. As to the rates, the law said it must allow Meralco and others to “operate viably”. (Epira, Chapter IV Section 43 – f)

Based on this provision, the ERC is using the PBR to determine the rates that Meralco and others can charge. The PBR was chosen by design. Consistent with the neoliberal agenda of Epira, it makes rates setting more market-based and reduces regulatory oversight. It adheres to the principle that “good utility performance should lead to higher profits”. (Biewald et al: 1997)

But this raises a fundamental question. What exactly is good utility performance? For a private company, good performance means high profits. For consumers, it means reliable service at the most reasonable rates. The law, however, is clear. The bottom line is the commercial viability of private utilities.

Thus, despite unresolved consumer concerns on the reasonable-ness of power rates, Meralco still got away with another rate hike. Onerous charges and taxes like the value added tax (VAT) including on unused electricity remain. Consumers continue to shoulder the costs of Napocor’s onerous contracts with independent power producers (IPPs).

Milking customers dry

Worse, Meralco does not even need a rate hike to remain viable or profitable. It has been earning way beyond what it should at the expense of consumers. From 1987 to 2007, for instance, Meralco earned a total return of P39.28 billion. Its total paid-up capital during the period meanwhile was only P441.6 million. (Nasecore: 2009)

What do these figures mean? They show that from 1987 to 2007, Meralco’s annual rate of return was a whopping 423 percent. It is scandalous to say the least. The acceptable level of rate of return is only 12 percent for public utilities. (Supreme Court: 2002)

Meralco owners have been milking customers dry throughout the years. Yet customers are today forced to shell out more money not only to finance Meralco’s operations. They are also asked to pay more so Meralco owners can increase their already outrageous profits.

Further, Epira institutionalized private monopoly control over the power sector. Meralco, aside from its captured market in distribution, also has its own IPPs. This allowed the firm to overcharge as much as P49.56 billion from June 2003 to June 2006. The amount represents the difference between the generation rates of Napocor IPPs and Meralco IPPs. (Nasecore: 2009)

Indeed, its customers have not only long paid whatever increases in rates that Meralco is asking for. It is Meralco that owes consumers. Until today, it has not even completed the past refunds ordered by the Supreme Court and ERC worth more than P34.12 billion.

Towards lower power cost

The power sector certainly needs restructuring. But such reforms must be within the framework of nationalization and effective people’s control. To pave the way for these reforms, Epira must be repealed.

In the immediate, the courts and ERC must be pressured to issue a restraining order on approved rate hikes. Pending petitions should also be strongly opposed. Current rate setting methodology must be reviewed to capture the more important public interest. To do this, the review process must be democratic and participatory.

At the same time, concrete measures to bring down the cost of electricity must be implemented now. These include some policy proposals long pushed by consumers and advocacy groups, to wit:

(1)   Scrap the VAT on power and oil;

(2)   Refund to customers all illegal collections by Meralco, other distribution utilities, and Napocor;

(3)   Stop the imposition of questionable charges like system loss, which is partly associated with a firm’s inefficiency;

(4)   Cancel onerous IPP contracts to liberate consumers from paying unused electricity;

(5)   Credible and thorough audit of financial records of Napocor, Meralco, and other players in the power sector (i.e. COA plus a parallel audit by consumer groups, independent experts, etc)

References:

  1. Nasecore, FOVA, FOLVA vs. Meralco, Reply to Meralco’s Comment (With Urgent Prayer To Grant Restraining or Status Quo Order, Court of Appeals, Special Fourteenth Division, CA-GR SP No. 108663, September 22, 2009
  2. Republic vs. Manila Electric Co., GR No. 141314, 391 SCRA 700, 708, November 15, 2002
  3. Beiwald, Bruce et al (1997). “Performance-Based Regulation in a Restructured Electricity Industry”, Prepared for the National Association of Regulatory Utility Commissioners, Cambridge, MA, November 8, 1997
  4. “Plug power rate hike loophole”, Philippine Daily Inquirer, January 1, 2010, http://nasecore.org/pr_010210.php
  5. “Meralco income to rise due to 2-step gov’t favor”, Malaya, January 6, 2010, http://www.malaya.com.ph/01062010/busi1.html
  6. “Napocor seeking increase in generation rates nationwide”, GMANews.TV, January 8, 2010, http://www.gmanews.tv/story/181077/napocor-seeking-increase-in-generation-rates-nationwide
  7. “Meralco cuts rates”, The Philippine Star, January 9, 2010, http://www.philstar.com/Article.aspx?articleId=539261&publicationSubCategoryId=63
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